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Programmatic Direct technology will make it easy for the demand side to exploit this rich pocket of quality inventory.

I recently sat through some great presentations on “programmatic direct” media buying at the recent Tech for Direct event in New York. With almost 70% of digital display dollars flowing through the negotiated (RFP) market, everyone wants to be in the game. One of the presenters, John Ramey of iSocket talked about what has happened to the advertising yield curve for digital display. This curve starts at the upper left corner with premium inventory capturing the highest CPMs, and is supposed to flow gently downward on the x-axis, towards the lowest value of inventory, ending on the lower right corner. A classic marketplace yield curve. In this world, ESPN can charge $20 CPMs for their baseball section, sites like Deadspin in the mid-tail can charge $7, and the networks and exchanges aggregating hundreds of sports blogs in the long tail can charge $1. Nice and fair, and rational.

This is not what has happened, though.

As Ramey correctly points out, we have a yield cliff now. This is world in which there are two types of inventory: The super-premium, which is hand sold directly for double-digit CPMs; and the remnant, which is sold via RTB on exchanges or surviving ad networks, often for pennies. In this world of the Haves and Have-Nots, there is no middle class of inventory—even though one could argue that $7 inventory on Deadspin might actually outperform its upscale cousin, ESPN. This inventory disparity we have created in the digital advertising industry has nothing to do with supply and demand, but everything to do with the process by which we transact.

Premium mid-tail buying is a great idea. Back in 2009, marketplace platforms like TRAFFIQ were bringing this innovation to the space, and enabling marketers to cherry pick and aggregate premium quality sites that could offer friendly CPMs and URL-level transparency. It’s not a new concept. In fact, I think premium mid tail buying is the canary in the coalmine for programmatic direct; when today’s technology can make it easy to put together a large array of guaranteed buys, and enable fast and easy optimization, then we will have succeeded. Here what was missing in 2009, and what we need to succeed today:

A Centralized Directory: You can’t buy stuff without knowing what’s available and how much it costs. Other media channels like direct mail have published prices for mailing lists, right down to audience targeting. You want to reach people who have bought something from the Cabela’s catalog in the last six months, and restrict the mailing to men only? No problem. You can find out what it costs, and who sells it. The digital display market needs to be organized in a directory, down to the placement level. You shouldn’t have to wait for an e-mail back from an RFP to find out what known inventory costs. That work is being done now, but has a lot more work to go through before it is comprehensive.

An Extensible Platform: Today’s API-driven technology makes it easy to enable buying directly into publishers’ inventory. A link into DFP means buyers can discover availability and start serving ads with a few button clicks. The problem is that agencies want a Single System to Rule Them All. So far, agencies have been stuck with installed, legacy systems that have more to do with billing and reconciliation than media planning and buying. Agencies want new, web-based ways to discover and buy great inventory, but they also want a system that plugs into their existing tools. They are not going to log into another buying system if they don’t have to. A system that can enable premium mid-tail buying at scale either has to integrate directly into existing media management systems—or replace them. Right now, there are a lot of tech companies at work retrofitting old technology or creating new technology that promises to make this a 2014 reality. It’s a horse race, and agencies are starting to place their bets. The winners are the one with the most extensible platforms that are good at integration, and they will be richly rewarded. The rest will fail, or become a point solution in someone else’s platform.

The Right Model: This is may be the most important factor in determining programmatic direct success. If you are charging anywhere north of 10% (and some would argue a LOT less than that) to help media buyers aggregate inventory, then you are not a “programmatic direct” technology company. You are an ad network, or media rep firm. The reason for industry consolidation is because disintermediation through technology has its own yield curve: The disruption that occurs always benefits the middle layer first, but markets always rationalize later. Mike Leo, former Operative CEO, told me about how another industry solved a similar problem that was occurring in the media business, where ad agencies were starting to rebel against specialized media buyers who in the middle of the transaction, with opaque pricing methodologies. The year was 1968, and agencies teamed up and decided that a standard rate of 15% was all they were willing to pay for television buying services (and then they eventually bought all of the media buying companies, but that’s another story). Anyway, markets always rationalize themselves, and right now even 15% feels like a big vigorish for agencies with ever-shrinking margins on their media practice.

Standards: It’s 2013, and we are still faxing IOs. This is largely because there are no accepted standards—and no protocol—for electronic orders.This is actually not a hard problem to solve, but getting adoption from buyers and sellers is what’s needed. Right now, a few companies are working with groups like the IAB to get real traction with standards, and we need that to succeed to make programmatic direct buying a scalable reality. Electronic orders suck a lot of the viscosity out of the deal pipeline, and start to let the machines do the grunt work of order processing, rather than a $50,000 junior media planner.

The good news is that there has been a tremendous amount of progress in 2013 on all of these initiatives. The promise of true programmatic direct buying is closer than ever, and there is enough real development behind the hype to make these dreams of efficient media buying a reality in the near future. In that future, it just may be possible for a buyer to use demand-side technology to aggregate the “fat middle” of premium mid tail publishers, and start to reward the middle class of inventory owners who are currently getting paid beer prices for champagne content.

Earlier this month, during the Agency-Only Day at the iMedia Agency Summit, I gave a presentation on agency automation and streamlining the media planning process. It’s a complicated and expensive process still done manually at most agencies. It’s a process that’s clearly ripe for automation and the seventy media executives in the room were all in vigorous agreement that modern media planning tools can bring huge productivity benefits. So, I was feeling great about my presentation because it clearly resonated with this group of experts.

However, at the end of my presentation, one digital media veteran who will remain anonymous raised his hand and said, “There’s an elephant in this room. I’m going to ask the question that everyone is thinking but is afraid to ask: do we really want to be more productive? After all, we get paid for our time and the slower we work the more we get paid.”

In days past, media agencies got paid a fixed commission on the media they purchased on behalf of their clients. However, the commission model broke down with the advent of digital media because of its extra responsibilities and complexities: optimization, reporting, reconciliations, etc. The typical commission did not cover the cost of digital buying and was unprofitable for the agency.

Instead of fixing the root cause by streamlining operations, many agencies treated the symptoms by switching from commissions to cost plus pricing. Now these agencies are addicted to charging for their time and have a negative incentive to invest in automation to streamline their operations.

My on the spot answer to the Elephant in the Room Question was that by eliminating the “grunt work” these same resources can be re-deployed to higher value activities. Instead of copying and pasting 600 placements from Microsoft Excel into an ad server, your employees can spend time on media strategy, negotiations, and client consulting. The agency could bill higher rates for these high-value activities.

Everybody would be happy, right? Employees would be happier with more meaningful work. Agencies would increase profitability. Clients would get better results.

Later that day at the cocktail hour, I met up with the person who asked the Elephant in the Room Question. He said my answer is a nice bedtime story, but the reality is that automation is scary because it threatens revenue streams and people’s jobs.

Guess what? That is completely true.

If you work at an agency and spend more than 50% of your time doing things that are really boring (copying and pasting to create multiple spreadsheets), or really repetitive (typing fields from a spreadsheet into fields in an ad server’s UI), or really pedantic (pulling out monthly delivery numbers from a plan, so you can reconcile billing for a client), then your job is in danger. However, if you are really good at working with clients or doing media strategy and analysis, then your job is not only safe but you’re in a great position for a promotion when your grunt work is automated.

David Kenny once remarked that “if you are using people to do the work of machines, you are already irrelevant.” He was comparing what is was like running Akamai, which had a lot of computers and relatively few people , to an ad agency, whose “inventory goes down the elevator every night,” as another David (Ogilvy) once said. In the end, computers always win the low-value, repetitive tasks, whether it’s welding bolts onto a car—or trafficking ad tags.

The question agencies have to ask themselves is, “will my clients continue to pay me to do this kind of work?” That’s the real Elephant in the Room.

After speaking with dozens of digital media publishers and planners, I’ve come realize that two things need to happen in order for more digital media proposals to be accepted:

1) The digital media planner (buyer) must communicate the campaign objectives, acceptance criteria, and detailed requirements in a manner that leaves no room for error or misunderstanding.

2) The digital media publisher (seller) must respond with a relevant proposal that includes all of the requested information. Take a look at the top 5 things you’ll find in digital media proposals that win.

The good news is that digital media spending continues to increase, and you can expect to see an even greater lift in demand for premium guaranteed inventory when interactive media buyers and sellers are effectively matched, consistently concise, and clearly understood.

Based on input from digital media buyers who have expressed their needs, I developed an EASY-RFP template using the desktop application most frequently used in 2012 by digital media planners; that’s right — Microsoft Excel!

I have been working for a company that makes software solutions for buying digital media, and I have worked for a number of ad technology companies in the past. In a world where digital banner ads are still purchased through email and fax, and media plans are mostly created using Microsoft Excel — technology dating from 1985 — the ad technology industry sees an opportunity to create efficiencies in the way media is bought and sold.

One of the odd industry dynamics we have encountered in bringing our product to market is how independent agencies are more apt to embrace new efficiencies than some of the “big four” owned agencies that lead the space in terms of media spend.

Logically, you’d think that gigantic media agencies, managing hundreds of media planners and buying on thousands on digital media channels, would grasp at the chance to do more planning with fewer personnel, migrating towards web-based tools that offer efficiency and centralization. The evidence has shown otherwise.

On the surface, it may seem as though the biggest difference between independent agencies and the majors is size. The majors have Ford, and the independents have the Ford dealers. They both work very hard to identify digital audiences, perform against marketers’ aggressive KPI goals, while trying to understand how they got there through detailed analytics. At the core, the difference between what media teams within holding company shops and a smaller agency does is minimal. So what accounts for the reluctance of bigger shops to innovate with technology tools?

One reason may be the way they get paid.

The biggest shops consistently rely upon cost-plus pricing, which pays them based on hours worked, plus an additional, negotiated margin. The typical $500,000 digital media plan takes an alarming 42 steps and nearly 500 man hours to complete, which can cost up to $50,000 — and that doesn’t even include developing the creative.

If you are paying your agency on a cost-plus basis, your agency doesn’t have a lot of incentive to create your plan faster, or with less labor. In fact, this type of pricing scheme creates an incentive for inefficiency, or what economists call a “perverse incentive.” Unfortunately, every cent you pay towards the labor of creating a media plan subtracts from the amount that can be dedicated to the media itself.

Spend

So, what to do? The most obvious choice for those working with a large agency under such a scheme is to try and change the payment terms. Pay-for-performance is optimal, but a careful analysis may show that paying on a percentage-of-spend model yields more reach, when you are not paying for the labor of building a media plan.

Some marketers are choosing instead to build small, efficient in-house teams to leverage the demand-side technologies that their agencies want to discover and buy digital media. Other marketers choose to work with multiple smaller, independent agencies that have specific expertise in different digital verticals. Those shops usually offer flexible fee structures, and you are far more likely to work with the team that pitched you after you hire them.

As they say in finance, it isn’t what you make, it’s what you keep. In digital media, moving away from cost-plus pricing relationships and towards new technologies for media buying means keeping more of your money for reach, and spending less on labor that doesn’t help you move the sales needle.

This presentation was given by Joe Pych at Digiday Agency Summit March 20, 2013 in Scottsdale, AZ. Two thirds of people in digital media plan to change jobs in the next two years because they are unhappy. This survey reveals the source of unhappiness and makes recommendations to increase job satisfaction.

Shameless self-promotion: Among many other things, this survey revealed that 76.1% of agencies use Microsoft Excel to create their media plans. It also revealed that 59.4% are not happy with their tools. Are you unhappy with wasting your life away in Excel? You should try NextMark’s Digital Media Planner tool. It’s free and better than Excel in at least 31 ways.

There’s been a lot of discussion lately about “programmatic premium” – using machines to fully automate the purchase of premium advertising inventory. It seems like everyconferencelately has someone from Kellogg’s on a panel saying programmatic premium is GR-R-REAT with very impressive statistics to support their claims.

The Ad Exchanges, DSPs, DMPs, SSPs, and various other TLAs (three letter acronyms) you see on Terry Kawaja’s Display Lumascape have certainly been successful at automating the buying and selling of remnant inventory. But remnant inventory represents only a small slice of advertising spending. According to Mike Leo, CEO of Operative, only 18% of digital media advertising budget is spent through exchanges.

Advertising technology stack vendors are now hungrily eyeing the other 82% of the pie that is currently being spent on premium advertising inventory through guaranteed contracts. Their story is their technology will work just as well for premium inventory as it has proven to be for remnant inventory. However, in practice, they face three very significant challenges.

First and foremost, today’s exchange-based technologies are not well-suited for buying guaranteed inventory. Exchange-based technology was built to optimize bids on an impression by impression basis in real-time. The lifecycle of the process is literally 30 milliseconds and does not involve humans. It’s just a simple transaction between two computers based on pre-programmed bidding algorithms.

In contrast, buying guaranteed inventory today is a messy 42-step process spanning weeks involving humans from multiple organizations, RFPs, dinners, ballgames, proposals, contracts, negotiations, reviews, signatures, and such. The big problem/opportunity with buying guaranteed inventory is not in optimizing bids, but rather in optimizing the workflow. Optimizing workflow within the agency and among trading partners requires a very different set of technologies than an algorithm for optimizing bid prices on a transaction.

To avoid all this messy workflow, some ad tech vendors ignore it and try to force-fit premium inventory into exchanges. They want to move the inventory into the game they are already good at playing.

That leads to the second problem: premium publishers don’t want to put their inventory in exchanges because it drives down the value of their inventory. Publishers joke that RTB really stands for “race to the bottom.” According to Walter Jacobs, EVP of Sales at Turner Digital “We don’t participate in any real time bidding or private exchanges at this point. It’s a very funny thing, because to the untrained eye, we might seem like an unsophisticated old media company that is scared to embrace technology. The opposite couldn’t be much closer to the truth. […] We believe the downside of RTB and private exchanges is that it fragments audiences.”

Ad tech vendors need to respect the needs of the premium publisher. Publishers are certainly keen to streamline their workflow, lower their transaction costs, and to make it easier to buy from them. However, they will never do that in an environment that commoditizes their inventory and creates channel conflict with their ad sales teams.

A third problem that is rarely mentioned, but perhaps trumps them all is the dirty secret that advertising agencies are making a ton of money on the old way of buying guaranteed inventory. Starting around 1990, agencies have moved from media commission models to hourly (or “cost plus”) pricing models. According to the 4A’s Labor Billing Survey Report, 91% of proposals today are priced based on hourly rates (despite scoring lowest among alternatives on the Grossman Grid). In other words, the more time they spend on a job the more they get paid for the job.

A typical digital media plan costs an agency $40,000+ in labor to create and execute. These costs plus a profit margin are the revenue for the agency. As such, agencies are reluctant to adopt technologies solely on the basis of efficiency because it will cut their revenue. As an engineer, it kills me there’s a disincentive to be more efficient. But that’s the cruel reality of the situation. Any new technology has to have value beyond just efficiency to give the agency a really good reason to break rank and to go through the painful process of establishing a new compensation model that preserves their revenue.

There’s a billion dollar opportunity for automation in premium inventory. Ad tech stack vendors have proven that automation works in remnant inventory. Now it’s time to raise the bar and evolve the automation to support the more sophisticated needs of the buyers and sellers in premium advertising inventory.

What are digital media buyers looking for in proposals, and what gets them to say ‘yes’?

After speaking with over 100 interactive media planners and publishers this month, I was surprised to learn how much variability there is in the quality of digital media proposals. It was also a challenge to find the ones that were most effectively aligned with clients’ goals and objectives. I was intent on helping publishers respond more effectively, so I asked a subject matter expert (SME) on the buy side, “what are the top five things you look for in an RFP response?” Here’s what he said:

#1 Completeness — don’t expect to be considered if you neglect to provide a completed proposal with flight dates, impressions, rates and cost for all placements. This may sound obvious, but not all proposals come through with this required information.

#2 Rationale — publishers need to provide rationale for the campaign as a whole, and for all of the proposed pieces of the plan. Publishers need to answer the following question: “Why is the overall campaign and each placement a good fit for the advertiser’s target and goals?”

#3 Differentiation — make sure your points of differentiation are easily identified and clear. If you received an RFP, then it is likely that your competitors have received one too.

#4 Clarification — a vendor who does not ask questions is likely to be perceived as disengaged in the RFP. If you pay close attention and ask good questions, then you’ll be far more likely to address the core needs of the advertiser and subsequently have a much better chance of being accepted.

#5 Brief Sales Pitch — it’s not always true that buyers don’t want to be sold. Here’s what my SME had to say in conclusion of the top 5 things he looks for in an RFP response:

“You gotta sell me. If you aren’t into it, then I won’t be… but just don’t go on too long.”Joel Nierman, Marketing and Media Director at Critical Mass

In addition to these insights from Joel, I’d like to offer an observation of my own. While content is king, format is queen. Media planners have not yet embraced the applications designed to streamline digital media acquisition and ad trafficking processes, but continue on as Excel junkies suffering from spreadsheet substance abuse.

So the takeaway is this — be creative and differentiate from the competition, but NOT at the expense of changing format. Make the numbers portion of your proposal fit the RFP template and it will be easier for the planner to say ‘yes’ to everything else. If this is not provided, then ask the question (#4 above) “how can I best provide you with the numbers so you don’t need to transpose them on your end?”… now you’re helping the buyer on an individual level as well.

The inefficiency of digital media buying is well-known. Tools and methods to improve workflow and efficiency have been developed over the years, but they’ve not been widely adopted. Could it be that agencies aren’t properly rewarded for being efficient? Or, worse yet, could it be that agencies are actually punished for being more efficient?

Let’s take a look at the economics of efficiency at an advertising agency.

Starting around 1990, agencies have moved from media commission models to hourly (or “cost plus”) pricing models. This movement has been accelerated by shift of advertising spending to relatively inefficient digital advertising. According to the 4A’s Labor Billing Survey Report, 91% of proposals today are priced based on hourly rates (despite scoring lowest among alternatives on the Grossman Grid).

Imagine a new technology has been just been developed that doubles staff productivity through automation. In other words, this automation would enable you get the same amount of work done at the same level of quality with half the number of people. Furthermore, this technology costs only 5% of the value created. In other words, it would only cost $5,000 for every $100,000 saved.

Purchasing and installing this new technology would normally be a “no brainer” decision. However, for the typical agency using hourly rates (or “cost-plus”) it’s not so simple. Consider the following before and after comparison:

As you see, the technology would enable the agency to serve the same 10 clients with half the number of people. It would reduce personnel costs by 50% saving the agency $2,000,000 per year while costing only $100,000 per year. That’s fantastic ROI on this new technology!

How would the agency be rewarded for this breakthrough? Since this agency uses hourly billing, there is no reward. In fact, there’s a huge punishment: the agency’s revenue would get cut in half, there would be a painful round of layoffs, and (assuming the agency can’t pass through the cost of productivity technology) the agency would suffer a 65.5% decline in profits. Not cool.

If you were making the decision, would you advocate this technology be purchased and installed? Given these numbers, that would be risky. Doing so would be what I call a CLM – a “career limiting move.”

The best argument to install this technology would be to gain a competitive advantage to win new business. But that would be a big bet. You’d have to more than double your business to make up for lost profits with existing clients.

Or you could change your compensation model to a value-based model, which would be a difficult transition. Would that be worth the risk?

This over-simplified example makes the point: digital media buying wants to be inefficient because of hourly compensation models. Until compensation move away from time-based models, there’s not much motivation to be more efficient.

On May 26, 2011, a new web privacy law came into effect in the United Kingdom (UK). The UK was first of the 27 European Union (EU) states to bring their laws in line with the directive intended to protect the privacy of individuals within the EU. With an understanding that there is work to be done and technical issues to resolve, the UK Government extended a one-year grace period for web sites to comply with the new regulations.

Well, the time as come! Effective tomorrow, the grace period is over and the Information Commissioners Office (ICO) will be authorized to impose fines of up to £500,000 — heavy!. In theory, all web sites that serve UK visitors would be subject to this legislation. In reality however, it will be very hard to pursue a case against companies with no legal presence in the EU.

While a few organizations may be looking to leverage web server locations as a scapegoat, it is the location of the legal entities that the enforcement agencies will be focused on– the web host locations won’t matter. There are many types of cookies and forms of consent, so the rules can get pretty complicated. So before you decide to cuddle with the cookie monster, consider that he can complicate your life and confine your business. For example, the legislation does not require consent for cookies to be used in situations defined as ‘strictly necessary’ — but what does that mean? As currently clarified, if a user has placed an order online, then it’s implied by the user’s initial request that permission be granted without further consent to interfere with the transaction. This is just one example of an exemption to the consent requirement, and there are likely to be many more as the battle continues. Very few precedents have been set, so it will be interesting to watch the progression in Europe — and to compare and contrast with the ‘Do Not Track’ agendas in the United States.

To further complicate the legislative implications, take a peek at the definition of “Consent” as noted in the Open letter on the UK implementation of Article 5(3) of the e-Privacy Directive on cookies: “Consent” is defined in the Data Protection Directive as “any freely given specific and informed indication of his wishes.” Note that there are no time constraints associated with this definition, and no specification that the consent must be “prior consent”. Therefore, it is possible that consent may be given after or during processing.

While a few of us may start to feel better about our online privacy, and I’d expect virtually none from the online marketing communities, this legislation has negative implications. The efforts required to acquire informed consent on the use of cookies are likely to be costly for web site owners and businesses. Non-compliant web site owners will have an advantage as well, because their users will not be faced with questions that interfere with their browsing and buying activities.

Is the EU agenda overkill? Why can’t we just rely on innovative solutions that work with our browsers, like Ghostery for instance, to give us better insight and control?

Last week, NextMark released its first data card quality report for the 2012 calendar year. This report continues to spark intense debate on the subject of data card quality, so let’s talk about it. Your comments would be much appreciated as we plan to refine the program for digital media publishers and planners.

Here’s how it all began…

When NextMark first launched its self-service data card publishing wizard at the turn of the new millennium, the new interface was met with mixed emotions. Some media managers and list owners were excited to finally have control over their promotional content, but others were not looking forward to the extra work. This created some gaps in regards to the attention that data cards received, subsequently creating issues for researchers who rely on data cards for purchase decisions and campaign planning.

To further encourage media managers to update their data cards and improve their content for researchers and campaign managers, NextMark introduced a new service on October 15, 2000 to integrate data cards on managers’ web sites. This created an even greater sense of ownership and brand awareness, but it was still not enough to address the issues of missing contact information, out-of-date counts, and other deficiencies.

On May 13, 2003, NextMark introduced its first data card quality report by electronically analyzing over 30,000 data cards (currently over 70,000). For each data card, a proprietary algorithm rates the quality of 13 key attributes. The primary objective of this initiative was to make sure that data cards were complete and accurate, and there was a little improvement.

On February 21, 2008, the data card quality report went public with a ranking of the top 50 managers. This resulted in a vanity check for companies that did not make the list, so a refined version was released on June 23, 2008 to categorize the top managers by number of data cards in their respective portfolios.

As word got out, some good things started to happen. Data card publishers began to pay close attention to the scores and the rankings, and many began to institute best practices for timely updates and list content management. Scores have been improving ever since, but something else also started to happen.

Data card quality rankings became a promotional opportunity for media managers and the scores were often taken out of context. The scoring algorithm, intended to measure completeness and update recency, grew in perception as a holistic measure for media management firms. Although unintended, this created some confusion.

To keep it simple, here’s the 3 point truth about data card quality.

Point 1: data card quality is independent of list quality.

Point 2: data card quality measures completeness and update recency.

Point 3: data card quality does not measure content quality or accuracy.

You should not judge a media manager on data card quality alone, and there are more important factors to consider. For example, take a look at the following catalog list rate card and you will notice that it has a high ‘popularity index‘ in addition to a quality presentation of the media (postal list in this case) it represents. The counts are current through the end of the most recent month, the monthly and quarterly hotlines are provided, and the average age and income is provided for the audience. It is important to also be aware of the fact that some media managers may confirm an update without actually changing the counts. We are on to them and will flagging that accordingly to make sure our research users are aware of the difference.